Credit cards can give consumers an edge

Don't rack up big bills, but wise use of plastic can aid your budget

WASHINGTON (MarketWatch) -- Spending wisely is key to keeping your family afloat during these tough times.

Racking up hundreds or even thousands of dollars in unneeded purchases on a credit card is a bad idea, especially since spending on credit can be extremely costly if bills aren't paid in full every month. Still, plastic can you help build credit, accumulate reward points, and limit liability for unsatisfactory purchases or theft.

"Credit cards are not inherently bad. They do provide a valuable service for consumers," said Pamela Banks, policy counsel for Consumers Union, the nonprofit publisher of Consumer Reports. "But there's a shared responsibility between credit-card issuers and consumers. Consumers...must use credit wisely, and be able to afford what they buy. On the other side, credit cards issuers must give consumers a fair deal, without tricks and traps."

Here are five instances when it's wise to use plastic:

1. Making larger purchases or ordering online

Banks said credit cards can protect consumers making larger purchases. "If you use you a credit card you have far more leverage to return the product than you would have if you used cash," she said. "Credit-card companies will step in and question a charge for you. If you raise a concern, you can call [the credit-card issuer] and they will put a hold" on a purchase.

Travis Plunkett, legislative director with the Consumer Federation of America, said credit cards can be handy when consumers order products. "If you fail to get the goods you were promised, you can get the charges reversed pretty quickly," he said. "When I ordered my wife some boots for her birthday and they never came, my credit-card company fought it out with the merchant."

Credit cards also allow consumers to take advantage of Web-only deals.

2. When traveling

After being fed food tainted with a sedative during a trip in Thailand, Erica Sandberg and her then-boyfriend were robbed of about $800. She had to sell her jeans to get money for food.

"We ended up having to sleep in a bed-bug hotel until we got money wired," said the personal-finance author.

Sandberg said credit is "safer than carrying all that currency around with you," adding that credit cards also are "essential" for travel if you're going to get a hotel room or rent a car.

3. When buying necessities

Plastic also can be helpful in emergency situations, such as a health-care crisis, said Tim Wesling, president of a personal financial planning firm in Alexandria, Va.

"A lot of times what people might consider essential, really isn't essential," Wesling said. "But if you are sick, and you don't have money or insurance, then [paying the medical bill is] an adequate reason to use a credit card."

Charging purchases that might be considered an investment--college textbooks that you might otherwise not be able to afford, for instance--may also make sense.

Still, consumers should be wary of justifying the charging of items based solely on the expectation of future income, Plunkett said. "The problem," he said, "is that bills come due rather quickly, and you don't want to be paying interest over a long period of time."

4. When using a budget

Statements from credit cards can help with budgeting, experts say. Consumers can put together a monthly budget based on their spending in the prior year.

Most creditors have categories to track expenses, Sandberg said. "It's fantastic to be able to gauge your spending. And once you have, you can modify that in the future."

Budgeting also gives consumers room to use their credit cards. "When they have already budgeted" the expense, Wesling said, "they can pay it off every month."

5. When building up reward points

Using a card that earns reward points that you can redeem for merchandise, travel or something else puts extra money in your pocket--especially if you pay off your bills each month.

Card programs with extra rewards for items such as groceries and gas can be a good match for consumers, according to CreditCards.com, a credit-card marketplace.

"If you shop at the right store, you can get points and you come out ahead," said Sandberg, who is a columnist for CreditCards.com.

She added that consumers should plan their purchases. "Delay purchases until you are able to maximize what you gain from using your card," Sandberg said. "Set some time aside for yourself and think: 'How can I get the most out of my credit, my money?'"

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